Auditor general Lyn Provost is to investigate why Labour MP Shane Jones over-ruled officials to give a New Zealand passport to a Chinese millionaire.

Jones was stood down last week and Labour leader David Shearer asked the auditor-general to investigate.

The following day Yong Ming Yan - also known as Bill Liu - was cleared of passport fraud at Auckland's High Court.

Provost fast-tracked her decision on an inquiry - which usually takes up to a month.

She has appointed Francis Cooke QC to lead the investigation. It could take anywhere from two months to a year.

Shearer welcomed the inquiry and said the matter is now in the hands of the Auditor-General.

"We referred this matter to the Auditor-General because we believe it is important that Shane Jones be given the opportunity to clear his name in the light of claims reported in the media," he said.

"It is also important that New Zealanders are reassured that the correct departmental and ministerial processes were followed in this case.''

Yan was granted permanent residency in 2002 and applied for citizenship in 2005. Jones made the final decision on the passport in 2008, after internal affairs officials recommended Yan's application be declined.

Jones has defended the decision saying it was granted on "humanitarian grounds".

Provost said the inquiry is being undertaken "with the agreement of Mr Jones".

The inquiry will examine:

The policies and practices of the Department of Internal Affairs when advising the Minister on applications for citizenship, in particular where the applicant's 'good character' is in question;

How and why the Minister decided to grant citizenship to Mr Yan; and

Any other matters the Auditor-General considers it desirable to report on.